Securities Law & Instruments


Headnote

Application to the Commission pursuant to section 38 of the Commodity Futures Act (Ontario) (CFA) for a ruling that the Applicant be exempted from the dealer registration requirement in paragraph 22(1)(a) and the prohibition against trading on non-recognized exchanges in section 33 of the CFA. As introducing broker, the Applicant will offer the ability to trade in commodity futures contracts and commodity futures options that trade on exchanges located outside of Canada and cleared through clearing corporations located outside of Canada to certain of its clients in Ontario who meet the definition of “permitted client” in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

Statutes Cited

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22, 33 38.
Securities Act, R.S.O. 1990, c. S.5, as am.

Instrument Cited

National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, s. 8.18.

IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, c. C. 20, AS AMENDED
(the Act)

AND

IN THE MATTER OF
ICAP CORPORATES LLC AND ICAP ENERGY LLC

RULING & EXEMPTION
(Section 38 of the Act)

                UPON the application (the Application) of ICAP Corporates LLC and ICAP Energy LLC (collectively, the Filers and each, a Filer) to the Ontario Securities Commission (the Commission) for:

(a)           a ruling of the Commission, pursuant to section 38 of the Act, that each Filer is not subject to the dealer registration requirement in the Act or the trading restrictions in the Act in connection with trades in Exchange-Traded Futures (as defined below) on exchanges located outside of Canada (Non-Canadian Exchanges) where the applicable Filer is acting as principal or agent in such trades to, from or on behalf of Permitted Clients (as defined below); and

(b)           a ruling of the Commission, pursuant to section 38 of the Act, that a Permitted Client is not subject to the dealer registration requirement in the Act or the trade restrictions in the Act in connection with trades in Exchange-Traded Futures on Non-Canadian Exchanges, where either Filer acts in respect of trades in Exchange-Traded Futures on behalf of the Permitted Client pursuant to the above ruling.

                AND WHEREAS for the purposes of this ruling (collectively, the Decision):

(i)            the following terms shall have the following meanings:

“CFTC” means the United States Commodity Futures Trading Commission;

“dealer registration requirements in the Act” means the provisions of section 22 of the Act that prohibit a person or company from trading in Exchange-Traded Futures unless the person or company satisfies the applicable registration provisions of section 22 of the Act;

“Exchange-Traded Futures” means commodity futures contracts or commodity futures options that trades on one or more organized exchanges located outside of Canada and that is cleared through one or more clearing corporations located outside of Canada;

“FINRA” means the Financial Industry Regulatory Authority in the United States;

“IB” means an Introducing Broker registered with the CFTC;

“NFA” means the National Futures Association in the United States;

“NI 31-103” means National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;

“Permitted Client” means a client in Ontario that is a “permitted client” as that term is defined in section 1.1 of NI 31-103;

“SEC” means the United States Securities and Exchange Commission;

“specified affiliate” has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information; and

“trading restrictions in the Act” means the provisions of section 33 of the Act that prohibit a person or company from trading in Exchange-Traded Futures unless the person or company satisfies the applicable provisions of section 33 of the Act;

(ii)           terms used in the Decision that are defined in the Securities Act (Ontario) (OSA), and not otherwise defined in the Decision or in the Act, shall have the same meaning as in the OSA, unless the context otherwise requires;

                AND UPON considering the Application and the recommendation of staff of the Commission;

                AND UPON the Filers having represented to the Commission as follows:

ICAP Corporates LLC

1.             ICAP Corporates LLC (ICAP Corporates) is a limited liability company formed under the laws of the state of Delaware of the United States of America. The head office of the Filer is located in Jersey City, New Jersey, United States of America.

2.             ICAP Corporates is an indirect, wholly owned subsidiary of ICAP plc (ICAP). ICAP's shares are listed on the London Stock Exchange and it is a FTSE 100 company. ICAP is registered in England no. 3611426.

3.             ICAP Corporates is not a reporting issuer in any jurisdiction in Canada.

4.             ICAP Corporates is not registered in any capacity under the Act or the OSA. ICAP Corporates relies on an exemption from registration as a dealer under the OSA pursuant to the international dealer exemption in section 8.18 of NI 31-103 to trade foreign securities with Canadian Permitted Clients.

5.             ICAP Corporates is a broker-dealer registered with the SEC, a member of FINRA, registered as an IB with the CFTC, and is a member of the NFA.

6.             ICAP Corporates holds memberships at the following exchanges: International Securities Exchange (ISE), ISE Gemini LLC, Nasdaq PHLX Inc, NASDAQ Stock Market, NYSE Arca, CME Group (CME, CBOT, NYMEX, COMEX), ICE (ICE Futures US and ICE Futures Europe), Nodal Exchange, Nasdaq Futures Exchange, and NGX.

7.             ICAP Corporates is not in default of securities legislation in any jurisdiction in Canada or under the CFA. ICAP Corporates is in compliance in all material respects with U.S. securities and commodity futures laws.

ICAP Energy

8.             ICAP Energy LLC (ICAP Energy) is a limited liability company formed under the laws of the state of Kentucky of the United States of America. The head office of the Filer is located in Louisville, Kentucky, United States of America.

9.             ICAP Energy is also an indirect, wholly owned subsidiary of ICAP. ICAP Corporates and ICAP Energy are affiliates.

10.          ICAP Energy is not a reporting issuer in any jurisdiction in Canada.

11.          ICAP Energy is not registered in any capacity under the Act or the OSA and does not rely on any exemption from registration in Canada.

12.          ICAP Energy is registered as an IB with the CFTC and is a member of the NFA.

13.          ICAP Energy is not a broker-dealer registered with the SEC and does not conduct a securities business in the U.S.

14.          ICAP Energy is an IB for CME Group (CME, CBOT, NYMEX, COMEX), ICE (ICE Futures US and ICE Futures Europe), Nodal Exchange, Nasdaq Futures Exchange, and NGX.

15.          ICAP Energy is not in default of securities legislation in any jurisdiction in Canada or under the CFA. ICAP Energy is in compliance in all material respects with U.S. commodity futures laws.

Activities

16.          Each of the Filers solicits and accepts orders for trades in Exchange-Traded Futures and either: (a) introduces them to another broker for execution and clearing or (b) executes (under a sponsored access arrangement) and submits for clearing trades in Exchange-Traded Futures for customers on exchanges globally through affiliated or unaffiliated member firms on other exchanges.

17.          Pursuant to its registrations and memberships, each of the Filers is authorized to solicit, accept, and execute customer orders, and otherwise act as a futures execution-only broker, in the United States. Each of the Filers is also authorized to solicit and accept customer orders and introduce them to an executing broker registered as a futures commission merchant in the United States. Rules of the CFTC and NFA require each of the Filers to maintain adequate capital levels, make and keep specified types of records relating to customer accounts and transactions including confirmations and statements, and comply with other forms of customer protection rules including rules respecting: know-your-customer obligations, account opening requirements, suitability requirements, anti-money laundering checks and best execution. These rules do not permit a Filer to treat Permitted Clients materially differently from such Filer’s United States customers. In respect of Exchange-Traded Futures, neither Filer provides clearing services or is authorised to receive or hold client money in any jurisdiction.

18.          Each Filer proposes to offer certain of its Permitted Clients in Ontario the ability to trade in Exchange-Traded Futures through such Filer, in its role as introducing broker.

19.          Each Filer will solicit and accept orders for trades in Exchange-Traded Futures on behalf of Permitted Clients in Ontario in the same manner that it solicits and accepts orders for Exchange-Traded Futures on behalf of its United States clients, all of which are “Eligible Contract Participants” as defined in the United States Commodity Exchange Act. Such Filer will follow the same know-your-customer procedures and order handling that it follows in respect of its United States clients. Permitted Clients will be afforded the benefits of compliance by such Filer with the statutory and other requirements of applicable securities regulators, self-regulatory organizations and exchanges located in the United States. Permitted Clients in Ontario will have the same contractual rights against such Filer as United States clients of such Filer.

20.          Neither Filer will maintain an office, sales force or physical place of business in Ontario.

21.          Each Filer will solicit and accept orders for trades in Exchange-Traded Futures in Ontario only from persons who qualify as Permitted Clients.

22.          Permitted Clients in Ontario of a Filer will be offered the ability to effect trades in Exchange-Traded Futures on Non-Canadian Exchanges.

23.          The Exchange-Traded Futures to be traded by Permitted Clients will include, but will not be limited to, Exchange-Traded Futures for equity index, interest rate, energy, currency, bond, agricultural and other commodity products.

24.          Permitted Clients of a Filer in Ontario will be able to trade Exchange-Traded Futures through such Filer by communicating with such Filer’s authorized Representatives or via such Filer’s proprietary electronic order routing system. Permitted Clients may also be able self-execute trades in Exchange-Traded Futures electronically via an independent service vendor and/or other electronic trading order routing systems.

25.          Each Filer may execute a customer’s order on the relevant Non-Canadian Exchange in accordance with the rules and customary practices of the exchange, or engage an executing broker registered as a futures commission merchant to assist in the execution of orders. Such Filer will remain responsible for all executions. As such Filer will only perform the execution of a Permitted Client's contract order and "give-up" the transaction for clearance to the Permitted Client's carrying broker or clearing broker (each, a Clearing Broker), such broker will also be required to comply with any relevant regulatory requirements, including requirements under the Act as applicable. Each Clearing Broker will represent to the applicable Filer in an industry standard give-up agreement that it will perform its obligations in accordance with applicable laws, governmental, regulatory, self-regulatory, exchange and clearing house rules and the customs and usages of the exchange or clearing house on which the relevant Permitted Client's orders will be executed and/or cleared. Each Filer will not enter into a give-up agreement with any carrying broker or clearing broker located in the United States unless such broker is registered with the CFTC and SEC.

26.          As is customary for all trades in Exchange-Traded Futures, a clearing corporation appointed by the exchange or clearing division of the exchange is substituted as a universal counterparty on all trades in Exchange-Traded Futures and Permitted Client orders submitted to the exchange in the name of the Clearing Broker or the applicable Filer or, on exchanges where such Filer is not a member, in the name of another carrying broker. The Permitted Client of a Filer is responsible to the Clearing Broker for payment of daily mark-to-market variation margin and/or proper margin to carry open positions and the Clearing Broker is in turn responsible to the clearing corporation/division for payment.

27.          Permitted Clients will pay commissions for trades to the applicable Filer for its role as introducing broker and Permitted Clients shall be responsible to pay any commissions to their Clearing Broker directly, if applicable.

28.          The trading restrictions in the Act apply unless, among other things, an Exchange-Traded Future is traded on a recognized or registered commodity futures exchange and the form of the contract is approved by the Director. To date, no Non-Canadian Exchanges have been recognized or registered under the Act.

29.          If the Filers were registered under the Act as a “futures commission merchant”, each of them could rely upon certain exemptions from the trading restrictions in the Act to effect trades in Exchange-Traded Futures to be entered into on certain Non-Canadian Exchanges.

                AND UPON the Commission being satisfied that it would not be prejudicial to the public interest to do so;

                IT IS RULED, pursuant to section 38 of the Act, that each Filer is not subject to the dealer registration requirement set out in the Act or the trading restrictions in the Act in connection with trades in Exchange-Traded Futures where the applicable Filer is acting as principal or agent in such trades to, from or on behalf of Permitted Clients provided that:

(a)           each customer effecting trades of Exchange-Traded Futures is a Permitted Client;

(b)           the executing broker and the clearing broker have each represented and covenanted to the applicable Filer, and the applicable Filer has taken reasonable steps to verify, that the broker is or will be appropriately registered under the Act, or has been granted exemptive relief from registration under the Act, in connection with the Permitted Client effective trades in Exchange-Traded Futures;

(c)           such Filer only execute trades in Exchange-Traded Futures for Permitted Clients on Non-Canadian Exchanges;

(d)           at the time trading activity is engaged, such Filer:

(i)            has its head office or principal place of business in the United States;

(ii)           is registered as an Introducing Broker with the CFTC in good standing;

(iii)          is a member in good standing with the NFA; and

(iv)          engages in the business of an Introducing Broker in Exchange-Traded Futures in the United States; and

(e)           such Filer has provided to the Permitted Client the following disclosure in writing:

(i)            a statement that such Filer is not registered in Ontario to trade in Exchange-Traded Futures as principal or agent;

(ii)           a statement specifying the location of such Filer’s head office or principal place of business;

(iii)          a statement that all or substantially all of such Filer’s assets may be situated outside of Canada;

(iv)          a statement that there may be difficulty enforcing legal rights against such Filer because of the above; and

(v)           the name and address of such Filer’s agent for service of process in Ontario;

(f)            such Filer has submitted to the Commission a completed Submission to Jurisdiction and Appointment of Agent for Service in the form attached as Appendix A;

(g)           such Filer notifies the Commission of any regulatory action initiated after the date of this ruling in respect of such Filer, or any predecessors or specified affiliates of such Filer, by completing and filing with the Commission Appendix “B” hereto within ten days of the commencement of any such action; provided that:

(i)            where the Filer is ICAP Corporates, such Filer may satisfy this condition by filing with the Commission within ten days of the date of this decision, a notice making reference to and incorporating by reference the disclosure made by such Filer pursuant to U.S. federal securities laws that is identified in the FINRA BrokerCheck system, as the case may be, and any updates to such disclosure that may be made from time to time and by providing notification, in a manner reasonably acceptable to the Director, of any filing of a Form BD ‘Regulatory Action Disclosure Reporting Page’, and

(ii)           where the Filer is ICAP Energy, such Filer may satisfy this condition by filing with the Commission (A) a copy of any notice filed by the Filer pursuant to CFTC Regulation 1.12(k), (l) or (m) at the same time such notice is filed with the CFTC and the NFA, and (B) on a quarterly basis, (1) a copy of the regulatory actions appearing on the Filer’s NFA Background Affiliation Status Information Center (BASIC) page and (2) a copy of any disclosures that would be required to be reported by the Filer in the Regulatory Disclosures section of the Filer’s Annual Registration Update to the NFA;

(h)           if such Filer does not rely on the international dealer exemption in section 8.18 of NI 31-103 (the IDE), by December 31st of each year, such Filer pays a participation fee based on its specified Ontario revenues for its previous financial year in compliance with the requirements of Part 3 and section 6.4 of OSC Rule 13-502 Fees, as if such Filer relied on the IDE;

(i)            by December 1st of each year, such Filer notifies the Commission of its continued reliance on the exemption from the dealer registration requirement granted pursuant to this Decision; and

(j)            this Decision shall terminate on the earliest of:

(i)            the expiry of any such transition period as may be provided by law, after the effective date of the repeal of the Act;

(ii)           six months, or such other transition period as may be provided by law, after the coming into force of any amendment to Ontario commodity futures law (as defined in the Act) or Ontario securities law (as defined in the OSA) that affects the dealer registration requirements in the Act or the trading restrictions in the Act; and

(iii)          five years after the date of this Decision.

                AND IT IS FURTHER RULED, pursuant to section 38 of the Act, that a Permitted Client is not subject to the dealer registration requirement in the Act or the trading restrictions in the Act in connection with trades in Exchange-Traded Futures on Non-Canadian Exchanges where a Filer acts in connection with trades in Exchange-Traded Futures on behalf of the Permitted Clients pursuant to the above ruling.

November 8, 2016

“Edward P. Kerwin”
Commissioner
Ontario Securities Commission

“Janet Leiper”
Commissioner
Ontario Securities Commission

 


APPENDIX A

SUBMISSION TO JURISDICTION AND APPOINTMENT OF AGENT FOR SERVICE

INTERNATIONAL DEALER OR INTERNATIONAL ADVISER EXEMPTED FROM REGISTRATION UNDER THE COMMODITY FUTURES ACT, ONTARIO

1.             Name of person or company (“International Firm”):

2.             If the International Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm:

3.             Jurisdiction of incorporation of the International Firm:

4.             Head office address of the International Firm:

5.             The name, e-mail address, phone number and fax number of the International Firm’s individual(s) responsible for the supervisory procedure of the International Firm, its chief compliance officer, or equivalent.

Name:

E-mail address:

Phone:

Fax:

6.             The International Firm is relying on an exemption order under section 38 or section 80 of the Commodity Futures Act (Ontario) that is similar to the following exemption in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (the “Relief Order”):

¨            Section 8.18 [international dealer]

¨            Section 8.26 [international adviser]

¨            Other [specify]:

7.             Name of agent for service of process (the "Agent for Service"):

8.             Address for service of process on the Agent for Service:

9.             The International Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the International Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such proceeding any alleged lack of jurisdiction to bring such Proceeding.

10.          The International Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the International Firm's activities in the local jurisdiction.

11.          Until 6 years after the International Firm ceases to rely on the Relief Order, the International Firm must submit to the regulator

a.             a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated;

b.             an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service; and

c.             a notice detailing a change to any information submitted in this form, other than the name or above address of the Agent for Service, no later than the 30th day after the change.

12.          This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.

Dated: ____________________________________

________________________________________________
(Signature of the International Firm or authorized signatory)

________________________________________________
(Name of signatory)

________________________________________________
(Title of signatory)


Acceptance

The undersigned accepts the appointment as Agent for Service of ____________________________________ [Insert name of International Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.

Dated: ____________________________________

________________________________________________
(Signature of the Agent for Service or authorized signatory)

________________________________________________
(Name of signatory)

________________________________________________
(Title of signatory)

This form, and notice of a change to any information submitted in this form, is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

https://www.osc.gov.on.ca/filings


APPENDIX B

NOTICE OF REGULATORY ACTION

1. Has the firm, or any predecessors or specified affiliates of the firm entered into a settlement agreement with any financial services regulator, securities or derivatives exchange, SRO or similar agreement with any financial services regulator, securities or derivatives exchange, SRO or similar organization?

Yes _____             No _____

If yes, provide the following information for each settlement agreement:

Name of entity

Regulator/organization

Date of settlement (yyyy/mm/dd)

Details of settlement

Jurisdiction

2. Has any financial services regulator, securities or derivatives exchange, SRO or similar organization:

 

Yes

No

(a)           Determined that the firm, or any predecessors or specified affiliates of the firm violated any securities regulations or any rules of a securities or derivatives exchange, SRO or similar organization?

––

––

(b)           Determined that the firm, or any predecessors or specified affiliates of the firm made a false statement or omission?

––

––

(c)           Issued a warning or requested an undertaking by the firm, or any predecessors or specified affiliates of the firm?

––

––

(d)           Suspended or terminated any registration, licensing or membership of the firm, or any predecessors or specified affiliates of the firm?

––

––

(e)           Imposed terms or conditions on any registration or membership of the firm, or predecessors or specified affiliates of the firm?

––

––

(f)            Conducted a proceeding or investigation involving the firm, or any predecessors or specified affiliates of the firm?

––

––

(g)           Issued an order (other than an exemption order) or a sanction to the firm, or any predecessors or specified affiliates of the firm for securities or derivatives-related activity (e.g. cease trade order)?

––

––

If yes, provide the following information for each action:

Name of Entity

Type of Action

Regulator/organization

Date of action (yyyy/mm/dd)

Reason for action

Jurisdiction

3. Is the firm aware of any ongoing investigation of which the firm or any of its specified affiliate is the subject?

Yes _____             No _____


If yes, provide the following information for each investigation:

Name of Entity

Reason or purpose of investigation

Regulator/organization

Date investigation commenced (yyyy/mm/dd)

Jurisdiction

Name of firm

Name of firm’s authorized signing officer or partner

Title of firm’s authorized signing officer or partner

Signature

Date (yyyy/mm/dd)

Witness

The witness must be a lawyer, notary public or commissioner of oaths.

Name of witness

Title of witness

Signature

Date (yyyy/mm/dd)

This form is to be submitted through the Ontario Securities Commission’s Electronic Filing Portal:

https://www.osc.gov.on.ca/filings


      In this Appendix, the term “specified affiliate” has the meaning ascribed to that term in Form 33-109F6 to National Instrument 33-109 Registration Information.